1. By a Memorandum of Understanding, hereinafter
referred to as "the Memorandum", entered into
between the appellant and the respondent on 11th
June, 2002, the parties agreed to collaborate on
an exclusive basis for jointly preparing and
submitting their tender for work associated with
the designing, manufacturing, supply,
2
installation, test and commissioning contract
for the Indian Railways Crashworthiness Project.
Pursuant thereto the parties jointly prepared
and submitted a tender signed by both the
parties on 30.9.2002 in response to a bid
invitation by RITES Limited, a Public Sector
Undertaking of the Ministry of Railways, on
30.9.2002.

2. After submission of such bid the parties were
invited to call upon the respondent on
29.10.2002 for contract negotiation in India,
but without any valid or justifiable reason the
respondent terminated the Memorandum on
12.11.2002 and on 15.11.2002 unilaterally
withdrew the joint bid submitted to RITES
without any reference to the applicant.
According to the applicant, some of the other
terms of the Memorandum dated 11.6.2002 were
also breached by the respondent which impelled
the applicant to address a letter to the
respondent on 23.6.2003 calling upon it to
3
explain the various defaults committed by it. A
request was also made to the respondent to enter
into a dialogue to work out the fair level of
compensation for the losses suffered by the
applicant on account of such breach. The
allegations contained in the letter were denied
by the respondent by its reply dated 20.8.2003.
Several letters were thereafter exchanged
between the parties culminating in a legal
notice being sent on behalf of the applicant to
the respondent to compensate the applicant for
the losses incurred by it on account of the
unlawful acts of the respondent. The response of
the respondent to the legal notice was one of
denial and assertion that the respondent had
acted fairly and properly in the matter.

3. Since all attempts made by the applicant,
including resolution of the dispute through an
alternate dispute resolution process and
mediation, proved to be abortive, the applicant
ultimately filed the present application for the
appointment of a sole Arbitrator under Section
4
11(9) of the Arbitration Act, 1996, as per
clause 13(2) of the Memorandum of Understanding
dated 11th June, 2002. Inasmuch as, one facet of
the dispute between the parties involves the
wording of the said clause of the Agreement, the
same is reproduced hereinbelow for the sake of
reference:

"CLAUSE 13 - SETTLEMENT OF DISPUTES
13.1. This Agreement, its
construction, validity and
performance shall be governed by and
constructed in accordance with the
laws of England and Wales;

13.2 Subject to Clause 13.3 all
disputes or differences arising out
of, or in connection with, this
Agreement which cannot be settled
amicably by the Parties shall be
referred to adjudication;

13.3 If any dispute or difference
under this Agreement touches or
concerns any dispute or difference
under either of the Sub Contract
Agreements, then the Parties agree
that such dispute or difference
hereunder will be referred to the
adjudicator or the courts as the case
may be appointed to decide the
dispute or difference under the
relevant Sub Contract Agreement and
the Parties hereto agree to abide by
5
such decision as if it were a
decision under this Agreement."

4. On behalf of the appellant company, Mr. S.C.

Gupta, learned advocate, submitted that although
in the Memorandum the law which was to apply to
the construction and performance of the
agreement had been mentioned, the venue for such
adjudication or arbitration had not been
stipulated in the agreement since the choice of
venue has obviously been left to the parties. It
was submitted that primarily two questions were
required to be answered in this matter, namely,:

(i) Whether clauses 13.2 and 13.3 of the
Memorandum of Understanding can be
construed to be an arbitration agreement;

and
(ii) Whether having regard to clause 13.1 of
the Memorandum of Understanding
indicating that the construction,

validity and performance of the agreement
would be governed by and constructed in
accordance with laws of England and
Wales, this Court would have jurisdiction
to appoint an Arbitrator under Section 11
of the Arbitration Act, 1996.

6

5. It was submitted that whenever the jurisdiction
of the domestic courts is invoked, the courts
have to look to their own laws to see whether
they have jurisdiction to take up such matter.
It was contended that since in the instant case
an application had been made under Section 11 of
the Arbitration and Conciliation Act, 1996, it
is the said law which has to be treated as the
relevant Indian Municipal Law applicable to the
instant case.

6. Mr. Gupta urged that a three-Judge Bench of this
Court had in Bhatia International vs. Bulk
Trading S.A, [2002 (4) SCC 105] held that Part-I
of the Arbitration and Conciliation Act, 1996,
applies both to domestic and international
arbitrations, irrespective of whether the seat
of arbitration is in India or not. It was urged
that while the present Memorandum was
undoubtedly an International Commercial
Arbitration, Part-I of the aforesaid Act would
still apply thereto and this Court would have
7
jurisdiction to entertain the application made
under Section 11 of the aforesaid Act.

7. It was also urged that, although, the parties
had decided that the law relating to the working
or an understanding of the Agreement was to be
the law of England and Wales, there is nothing
in the Memorandum to warrant a conclusion that
the seat of arbitration is to be outside India
in the Courts of England and Wales or that the
parties had mutually excluded the application of
any of the provisions of Part-I of the aforesaid
Act to the Agreement. It was also submitted
that by virtue of the Memorandum, the parties
thereto had not ousted the jurisdiction of this
Court nor had any express intention to that
effect been included in the said Memorandum.

8. Mr. Gupta contended that even with reference to
the laws of England and Wales, which is the
proper law governing the Arbitration Agreement,
the Courts of England and Wales do not have
8
exclusive jurisdiction to appoint an Arbitrator
in the instant dispute having regard to the
provisions of Sections 2(f) and 2(8) of the
Arbitration and Conciliation Act, 1996.
Referring to some of the provisions of the
(English) Arbitration Act, 1996, and, in
particular, Section 2 thereof, Mr. Gupta
submitted that some of the sections of the Act
would apply to arbitration proceedings even if
the seat of arbitration is outside England and
Wales or the Northern Islands, or if no seat is
designated or determined, as in the instant
case. According to Mr. Gupta, even though the
present Arbitration Agreement was to be governed
by the Laws of England and Wales, according to
the choice of the parties to the Memorandum, the
Venue for holding the arbitration did not have
to be situated within the jurisdiction of the
Courts of England and Wales. Mr. Gupta urged
that an almost identical situation had arisen in
the case of Bhatia International (supra), where
an application made by the respondent therein to
9
the Third Additional District Judge, Indore,
M.P., was under Section 9 of the Arbitration and
Conciliation Act, 1996, for grant of certain
interim reliefs to restrain the parties from
alienating, transferring and creating third
party rights, disposing of, dealing with and/or
selling their business assets and properties
till the matter was decided by the Court.
Bhatia International raised a plea as to the
maintainability of the said application which
was dismissed by the learned Additional District
Judge upon holding that the Court at Indore had
jurisdiction to entertain the application filed
by Bulk Trading S.A. under Section 9 of the
above Act and that the same was maintainable.

9. The order of the learned Third Additional
District Judge was challenged before the M.P.
High Court, Indore Bench, by Bhatia
International by way of a writ petition, which
was also dismissed by the High Court. The
Judgment and Orders, both of the learned
10
Additional District Judge, Indore, and the
Madhya Pradesh High Court, Indore Bench, were
challenged before this Court by Bhatia
International and it was submitted on its behalf
that Part-I of the Arbitration and Conciliation
Act, 1996, applies only to arbitrations where
the place of arbitration is in India, as has
been clearly indicated in Sub-section (2) of
Section 2 of the said Act. In the said case, it
was also urged on behalf of Bhatia International
that Section 2(i)(f) of the Arbitration and
Conciliation Act, 1996, defines "International
Commercial Arbitration" and that such
arbitration could take place either in India or
outside India. The submissions made on behalf
of Bhatia International were accepted by this
Court upon a finding that, although, Section 2
(2) of the Arbitration and Conciliation Act,
1996, provides that Part-I of the Act would
apply where the place of arbitration is in
India, it did not provide that Part-I would not
apply where the place of arbitration is not in
11
India. It was also held that it was nowhere
provided that Part-I of the aforesaid Act would
not apply to arbitrations taking place outside
India. Accordingly, this Court concluded as
follows :-

"To conclude, we hold that the
provisions of Part-I would apply to all
arbitrations and to all proceedings
relating thereto. Where such
arbitration is held in India the
provisions of Part-I would compulsory
apply and parties are free to deviate
only to the extent permitted by the
derogable provisions of Part-I. In
cases of international Commercial
arbitrations held out of India
provisions of Part-I would apply unless
the parties by agreement, express or
implied, exclude all or any of its
provisions. In that case the laws or
rules chosen by the parties would
prevail. Any provision, in Part-I,
which is contrary to or excluded by that
law or rules will not apply."

10. Mr. Gupta submitted that all contracts which
provide for arbitration and contain a foreign
element may involve three relevant systems of
law, which include the law governing the
substantive contract or the proper law of
12
contract, or the law governing the agreement to
arbitrate, which is the proper law of the
arbitration agreement, or the law governing the
conduct of the arbitration proceedings which is
the curial law. It was submitted that in the
present case, the parties had mutually chosen
the law of England and Wales to be the proper
law of contract and it could, therefore, be
contended that the proper law of the arbitration
agreement is also the law of England and Wales.
He, however, urged that there was nothing in the
agreement to indicate that the parties had
agreed as to the venue of arbitration. He
submitted that the law which was to govern the
conduct of arbitration or the curial law, not
having been indicated by the parties, the same
could be determined only by the Arbitrator. He
submitted that when the Arbitrator to be
appointed in the instant case, chooses the seat
of arbitration, the law relating thereto will
govern the law of the conduct of the arbitration
proceedings. Mr. Gupta urged that the above
13
proposition finds full support in the decision
of this Court in National Thermal Power
Corporation vs. Singer Company & Anr. [1992 (3)
SCC 551] where in paragraph 28, it has been
observed that questions relating to the
jurisdiction of the Arbitrator to decide a
particular issue relating to the continuance of
an arbitration agreement, its validity, effect
and interpretation are determined exclusively by
the proper law of the arbitration agreement.
The procedural power and duties of the
Arbitrator are regulated in accordance with the
rules chosen by the parties to the extent that
those rules are applicable and sufficient and
are not repugnant to the procedural law and
practice of the seat of arbitration. It was
further observed that the concept of party
autonomy in international contracts is respected
by all systems of law so far as it is not
incompatible with the proper law of the contract
or the mandatory procedural rules of the place
14
where the arbitration is agreed to be conducted
or any overriding public policy.

11. It was submitted that since in the instant case
the seat of arbitration would have to be
determined by the Arbitrator, once he was
appointed, the question as to which law would
govern the conduct of the arbitration
proceedings should not be decided at this stage.

12. On behalf of the appellant it was lastly urged
that clauses 13.2 and 13.3 of the Memorandum of
Understanding clearly indicates that the
intention of the parties to the said Memorandum
of Understanding was to have their disputes
resolved by arbitration although the expression
used in the said clauses is "adjudication".
According to Mr. Gupta, use of the said
expression did not detract from the intention of
the parties to have their disputes resolved by
arbitration. He submitted that the expression
"adjudication" had been defined in various legal
15
dictionaries to mean the act of adjudicating;
the process of trying and determining a case
judicially; the application of the law to the
facts and an authoritative declaration of the
result. Learned counsel submitted that in
Black's Law Dictionary the expression
"adjudication" is defined as being the legal
process of resolving of a dispute or the process
of judicially deciding a case. Learned counsel
submitted that the expressions `adjudicate' and
`adjudge' have also been defined to mean to rule
upon and award judicially.

13. Mr. Gupta urged that having regard to the
decision of this Court in Bhatia International
(supra), it is beyond question that Part-I of
the Arbitration Act, 1996, would also be
attracted to the instant case and the
application made under Section 11 of the said
Act was, therefore, maintainable.
16

14. Mr. Gupta's submissions that although the proper
law of the arbitration agreement had been
stipulated in Clause 13.1 to be the laws of
England and Wales, such provision did not
automatically vest jurisdiction only on the
Courts of England and Wales to deal with and
decide all issues arising out of arbitration
agreement, was denied by Mr. Parag Tripathi,
learned Senior counsel for the respondent. It
was urged that an application under Section 11
of the Arbitration and Conciliation Act, 1996,
is nothing but a step in performance of the
arbitration clause and since the performance of
the Memorandum is to be governed by the laws of
England and Wales, according to the choice of
the parties, it is the procedural law of England
and Wales which has to be applied to the
performance of the arbitration agreement as
well. Referring to the decision in the National
Thermal Power Corporation case (supra), which
had also been referred to by Mr. Gupta, Mr.
Tripathi submitted that in the said decision the
17
views of jurists such as Dicey, Mustill and Boyd
and Russel had been reiterated in support of the
contention that the overriding principle is that
the courts of the country, whose substantive
laws govern the arbitration agreement, are
competent courts in respect of all matters
arising under the arbitration agreement, and the
jurisdiction exercised by the courts of the seat
of arbitration is merely concurrent and not
exclusive and strictly limited to the matter of
procedure.

15. Mr. Tripathy submitted that the decision in the
aforesaid case supports the proposition that
when the parties to the contract, do not express
any choice with regard to the law governing the
contract or the arbitration agreement in
particular, a presumption has to be drawn that
the parties intended that the proper law of the
contract as well as the law governing the
arbitration agreement would be the same as the
law of the country which is the seat of
18
arbitration. But when the parties expressly
choose the proper law of the contract, as in the
instant case, in the absence of a clear
intention such law must govern the arbitration
agreement also though it is collateral and
ancillary to the main contract.

16. Mr. Tripathi urged that similarly where the seat
of arbitration is indicated, then, unless there
is an indication to the contrary, it will be
deemed that the place where the proper law
governing the arbitration proceedings is in
force is the place chosen by the parties to be
the seat of arbitration as well. Learned
counsel referred to the decision of the Court of
Appeal in Naviera Amazonica Peruana S.A. vs.
Compania internacional De Seguros Del Peru,
reported in Lloyd's Law Reports [1988 (Vol.I)

116), wherein it was held that while
interpreting an arbitration clause the use of
the phrase "arbitration agreeing to the
conditions of laws of London" means that the
19
arbitration was to be held in London, not by the
implication of some additional term, but by
giving to those words their ordinary commercial
meaning.

17. Mr. Tripathi submitted that in this case also
since the parties had stipulated the law which
was to govern the Memorandum, but had not
indicated the seat of arbitration, in keeping
with the consistent views expressed by the
Courts and jurists, it must be held that the
seat of arbitration must necessarily be the
Courts of England and Wales. Mr. Tripathy
submitted that consequently this court has no
jurisdiction to entertain the applicant's
petition under Section 11(9) of the Arbitration
and Conciliation Act, 1996, and the same was
liable to be dismissed.

18. Mr. Tripathy also urged that the expression "may
be referred to arbitration" or "can be referred
to arbitration" have consistently been held by
the Indian Courts to be antithetical to the
20
concept of arbitration. Reference was made to
various decisions on this count as well.
Regarding use of the expression "adjudication",
Mr. Tripathy submitted that a final decision
arrived in such adjudication proceedings would
not make it a valid arbitration agreement. He
urged that unless it is the clear intention of
the parties that arbitration is to be the only
forum for adjudication of disputes, the
requirement of a valid arbitration clause is not
fulfilled.

19. In support of his aforesaid submission, Mr.
Tripathy referred to decisions of various High
Courts and also the decision of this Court in
Jagdish Chander v. Ramesh Chander, [2007 (5) SCC
719], wherein while dealing with the provisions
and scope of Sections 7, 8 and 11 of the
Arbitration and Conciliation Act, 1996, with
reference to Section 89 of the Code of Civil
Procedure, this Court held that the existence of
an arbitration agreement, as defined under
21
Section 7 of the above Act, is a condition
precedent for exercise of power for appointment
of the Arbitrator/Arbitral Tribunal, under
Section 11 of the aforesaid Act. Mr. Tripathy
pointed out that while arriving at such
conclusion, this Court laid down certain tests
to decide as to what would constitute an
arbitration agreement, namely, (i) that the
intention of the parties to enter into an
arbitration agreement would have to be gathered
from the terms of the Agreement; (ii) that
even if the words "arbitration" and "arbitrator"
are not used in a clause relating to settlement
of disputes with reference to the process of
such agreement or with reference to the private
tribunal which is to adjudicate upon the
disputes, it does not detract from the clause
being an arbitration agreement if it has the
attributes and elements of an arbitration
agreement. Conversely, the mere use of the
words `arbitration' or `arbitrator" in a clause
will not make it an arbitration agreement, if it
22
requires or contemplates a further or fresh
consent of the parties for reference to
arbitration.

20. Mr.Tripathy submitted that any ambiguity and
vagueness in the arbitration clause would render
the same invalid as had been held by the
Calcutta High Court in (i) ITC Classic Finance
Ltd. vs. Grapco Mining and Co. Ltd, [AIR 1997
Cal. 397] and (ii) Teamco Private Ltd. vs.
T.M.S. Mani, [AIR 1967 Cal. 168]. Mr. Tripathy
urged that both clauses 13.2 and 13.3 are
somewhat vague on the question of reference and
the finality of the decision in the adjudication
proceedings.

21. It was contended that the expressions
"construction, validity and performance" used in
clause 13.3 of the Memorandum is a decisive
indication that the intention of the parties was
to give exclusive jurisdiction to the procedural
23
law of England and Wales even in respect of the
appointment of an Arbitrator.

22. In concluding, Mr. Tripathy attempted to
distinguish the decision in Bhatia
International's case (supra) by submitting that
the law laid down in the said decision was not
attracted to the facts of the instant case as in
the said decision it had only been held that
Part-I of the Arbitration and Conciliation Act,
1996, would apply to International Commercial
Arbitrations unless there was a specific
agreement either expressed or implied to the
contrary. Mr. Tripathy contended that since the
parties had clearly expressed their intention in
clause 13(i) of the Memorandum of Understanding
that the law of England and Wales was to be the
proper law in respect of the Memorandum, it must
necessarily follow that it was the intention of
the parties that the arbitral proceedings should
also be subject to the jurisdiction of the
Courts of England and Wales.

24

23. It appears that after the conclusion of the
hearing of this case, another decision of the
House of Lords in Lesotho Highlands Development
Authority vs. Inpregilo SpA, [2005 UKHL 43],
came to the notice of the respondent where a
reference to the juridical seat of the
arbitration had been made and it was observed
that the determination of the juridical seat of
arbitration as England is the gateway to the
powers of the Tribunal spelt out in many
provisions of the English Arbitration Act, 1996.

24. Although, the matter has been argued at great
length and Mr. Tripathy has tried to establish
that the decision of this Court in Bhatia
International's case (supra) is not relevant for
a decision in this case, I am unable to accept
such contention in the facts and circumstances
of the present case. It is no doubt true that
it is fairly well-settled that when an
arbitration agreement is silent as to the law
25
and procedure to be followed in implementing the
arbitration agreement, the law governing the
said agreement would ordinarily be the same as
the law governing the contract itself.
The decisions cited by Mr. Tripathy and the views
of the jurists referred to in the National Thermal
Power Corporation case (supra) support such a
proposition. What, however, distinguishes the
various decisions and views of the authorities in
this case is the fact that in the Bhatia
International case (supra) this court laid down the
proposition that notwithstanding the provisions of
Section 2(2) of the Arbitration and Conciliation
`Act, 1996, indicating that Part-I of the said Act
would apply where the place of arbitration is in
India, even in respect of International Commercial
agreements, which are to be governed by laws of
another country, the parties would be entitled to
invoke the provisions of Part-I of the aforesaid Act
and consequently the application made under Section
11 thereof would be maintainable.
26

25. The decision in the Bhatia International case
(supra) has been rendered by a Bench of Three
Judges and governs the scope of the application
under consideration, as it clearly lays down
that the provisions of Part-I of the Arbitration
and Conciliation Act, 1996, would be equally
applicable to International Commercial
arbitrations held outside India, unless any of
the said provisions are excluded by agreement
between the parties expressly or by implication,
which is not so in the instant case.

26. Furthermore, from the wording of clause 13.2 and
clause 13.3 I am convinced, for the purpose of
this application, that the parties to the
Memorandum intended to have their disputes
resolved by arbitration and in the facts of this
case the petition has to be allowed.

27. Accordingly, Justice B.N. Srikrishna, is
appointed as sole arbitrator to arbitrate upon
27
the disputes which have arisen betweens the
parties hereto as set out in sub-paragraphs (a)
to (h) of paragraph 19 of the present
application. The sole Arbitrator will be
entitled to decide upon the procedure to be
adopted in the arbitral proceedings, the
sittings of the arbitral proceedings and to also
settle his fees in respect thereof. The sole
Arbitrator shall make positive efforts to
complete the arbitration proceedings and pass
his award with expedition.